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A Discrete Choice Model For Large Heterogeneous Panels with Interactive Fixed Effects with an Application to the Determinants of Corporate Bond Issuance

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  • Boneva, L.
  • Linton, O.

Abstract

What is the effect of funding costs on the conditional probability of issuing a corporate bond? We study this question in a novel dataset covering 5610 issuances by US firms over the period from 1990 to 2014. Identification of this effect is complicated because of unobserved, common shocks such as the global financial crisis. To account for these shocks, we extend the common correlated effects estimator to settings where outcomes are discrete. Both the asymptotic properties and the small sample behavior of this estimator are documented. We find that for non-financial firms, yields are negatively related to bond issuance but that effect is larger in the pre-crisis period.

Suggested Citation

  • Boneva, L. & Linton, O., 2017. "A Discrete Choice Model For Large Heterogeneous Panels with Interactive Fixed Effects with an Application to the Determinants of Corporate Bond Issuance," Cambridge Working Papers in Economics 1703, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1703
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    More about this item

    Keywords

    Heterogeneous panel data; discrete choice models; capital structure;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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